CO-FOUNDER BACK AT GOOGLE'S HELM

Published: January 21, 2011

SAN FRANCISCO -- Google made the biggest management shake-up in a decade on Thursday, handing the reins of the company to one of its co-founders in an effort to rediscover its start-up roots.

As it has grown into the dominant company in Silicon Valley, Google has lost some of its entrepreneurial culture and become a slower-moving bureaucracy, analysts and insiders say, in contrast to Facebook, Twitter and other younger, more agile competitors.

To counter this, the company announced that Larry Page, its 38-year-old co-founder, would take over as chief executive from Eric E. Schmidt, a technology industry veteran who was brought in a decade ago to provide adult supervision, as Silicon Valley calls it.

Mr. Schmidt, 55, will remain executive chairman of the company, which had a market value of $200 billion at the close of trading on Thursday, up from $27 billion when it went public in 2004.

''One of the primary goals I have is to get Google to be a big company that has the nimbleness and soul and passion and speed of a start-up,'' said Mr. Page in a telephone interview on Thursday. He will start his new role in April.

The shake-up comes at a time of major upheaval in Silicon Valley. The company, and the search industry, face challenges on several fronts.

But the sudden rise of Facebook has exposed Google's failures in areas like social networking and threatens its vast share of the online advertising market. Meanwhile, although Google has had success in new areas like mobile and display advertising, it has struggled to branch out into other businesses like television.

The unspoken fear within Google is that it could become like Microsoft, a once-dominant technology company that seems past its prime and perceived as stodgier, despite successes like XBox and Kinect. Indeed, for all its financial success, Google, which has 24,400 employees, is no longer considered by many top engineers as the most desirable place to work in the Valley; a new generation of start-ups has taken that place.

And in recent years, Google has lost scores of engineers and a string of high-profile senior executives, including Sheryl Sandberg, now chief operating officer at Facebook, and Tim Armstrong, now chief executive of AOL.

Mr. Page led the company in its early days but relinquished that role in 2001, when it was still private. In tapping him to return to the post, Google becomes one of the few major companies in the Valley to be put under the control of a founder after being run for so long by a professional manager. To some, the move signaled a kind of coming-of-age for Mr. Page and Mr. Brin, who were in their late 20s when Mr. Schmidt took over. Even Mr. Schmidt characterized it as a moment for the training wheels to come off.

On his Twitter account, Mr. Schmidt wrote: ''Day-to-day adult supervision is no longer needed.'' Later, on a conference call with analysts after Thursday's earnings report, he said, ''I believe Larry is ready,'' adding, ''It's time for him to have a shot at running this.''

The management move ends an unusual experiment in which Google, the world's largest Internet company, was run jointly by a troika of Mr. Schmidt; Mr. Page, who was president of products; and Sergey Brin, 37, the company's other co-founder and its president of technology.

In the interview, Mr. Page also explained the move as an effort to streamline, saying the three had selected him as the top decision-maker because of ''the pace of decision-making and the scale of the company.'' Mr. Brin, who joined Mr. Page and Mr. Schmidt in the interview, said the three-way process confused employees.

''We wanted to make it clear to all the executives and the managers who report to us where they should send an e-mail,'' he said.

Mr. Page and Mr. Schmidt said the decision was mutual. ''I don't think there's another person in the universe that could have done as good a job as Eric has done in the company,'' Mr. Page said.

The relationship between the founders and Mr. Schmidt was rocky during its early years, as the founders frequently undercut Mr. Schmidt's decisions. Although they worked well together for the last several years, there remained recurring strains.

Ken Auletta, the author of ''Googled: The End of the World As We Know It,'' said in an interview that while Mr. Schmidt may simply have been ready for a change after 10 years, he may have received some encouragement to step aside.

''I don't think he was pushed aside, but he may have been nudged,'' he said.

Under Mr. Schmidt's helm, Google has prospered, but over the years, it has become less attractive to some engineers, who say it has become harder to develop new ideas while working there. The problem is one that all big companies face, but it is more pressing in Silicon Valley, where the most talented engineers tend to have the strongest entrepreneurial drive. Google has tried to retain dissatisfied employees with perks like giving them time to work on new projects. But some insiders say those incentives have lost effectiveness.

The news of the change rocked Silicon Valley, with analysts and company insiders offering varying theories. Some said Mr. Schmidt was tired of the day-to-day hassles of management. Mr. Schmidt said in the interview, ''I would tell you, frankly, a decade is a long time to be a C.E.O., and Larry will discover this.''

Others say Mr. Page always planned to re-assert his authority at some point.

''Larry has wanted to be C.E.O., so that's not a surprise,'' said a former Google sales executive who would speak only anonymously to preserve his relationship with a powerful company. ''But the timing -- I've talked to people at Google today and they were just flabbergasted.''

Esther Dyson, a veteran Valley investor who has long known the Google founders and Mr. Schmidt, said, ''It is unexpected but it makes a lot of sense.'' She added: ''Larry and Sergey have grown up. They want to run their own company.''

After the management change, Mr. Brin will concentrate on several new products, which he declined to name, while Mr. Schmidt will focus on external business partnerships and government outreach, including fighting regulators' concerns about Google's growing power.

Mr. Page and Mr. Brin co-founded Google when they were graduate students in computer science at Stanford in 1998.

Mr. Page is aloof, cerebral, intensely private and occasionally brusque. While Mr. Brin is more gregarious, the two didn't trust outside investors and sought to keep control of the company.

The co-founders and Mr. Schmidt all have controlling stakes in the company. Forbes magazine recently estimated that Mr. Page and Mr. Brin had a net worth of $15 billion each, and Mr. Schmidt, $5.5 billion.

The former executive said the change might be a welcome one if it helps launch products more quickly. ''In that respect, getting one of the co-founders in place might be just the energy charge folks need.''